Will the value of precious metals ever fall?

High demand for precious metal : Investors are hoarding gold

Investors are also hoarding at the moment: namely gold. Bars and coins are largely sold out at many dealers. In the online shop of the dealer Degussa, you can currently neither find a bar weighing just one gram, nor a bar weighing 500 grams. Only gold bars weighing one kilogram were still available at Degussa on Friday. But then you pay almost 50,000 euros. Classic coins such as the Krugerrand in gold were also sold out in almost all variants. “We currently have a large number of orders,” writes the dealer. They are working flat out to "process" every order as quickly as possible. The stocks would be gradually replenished.

The situation is similar for other dealers. At Pro Aurum, many bars are theoretically still available, but the company is currently having problems with delivery: The value logistics company Prosegur, who has so far delivered precious metal for Pro Aurum with a value of 25,000 euros or more, is no longer serving private customers for the time being.

Pro Aurum has therefore decided to close its online shop from Monday to Wednesday. That should probably also help to master the purchase orders that have already accumulated. The dealer reports of a "real flood of orders". 5000 purchase orders are currently still in the pipeline, which are now to be processed gradually. According to a spokesman, even during the euro crisis, private demand for gold was not as great as it is now. At the same time, investors also increasingly bought gold back then. After all, it is considered a currency in crisis, a safe haven.

A month ago the price of gold was eight percent higher

The paradox of the current situation, however, is: Although private individuals are currently buying an enormous amount of gold, the price has recently fallen. Although it recovered slightly on Friday, it is still almost ten percent lower than it was a month ago. The reason: the price of gold depends on the world market and thus above all on major investors. And unlike private individuals, they have recently parted with gold.

Chris-Oliver Schickentanz, chief investment strategist at Commerzbank, explains it this way: “Institutional investors are currently trying to sell as much as possible. In addition to stocks, this also affects gold. ”Especially since, depending on when they bought it, they can still get rid of the precious metal at a profit - which is not the case with many stocks. At the same time, some professional investors simply need money right now because brokers require them to provide additional collateral in view of the falling share prices. This is particularly the case with transactions that investors have carried out on credit. The call to inject more money is also called a "margin call" in technical jargon. From Switzerland it is said that in addition to gold, for this reason, works of art are now increasingly being offered for sale.

The gold price is also falling due to the falling demand for gold for the jewelry industry. Especially in China, one of the largest sales markets for jewelry, people currently hardly buy gold chains or rings.

Do banknotes also separate from gold?

Meanwhile, it is unclear whether the central banks will also move the gold price down. Because they too have high gold reserves as security. It is not known whether they will sell some of them. “They are not currently forced to do this,” says Schickentanz. “But it could also be that the central banks want to take profits.” Like investors, the central banks also benefit when they can sell gold at a higher price than they once spent on it.

On the other hand, buying gold now, as many retail investors do, is a risk. Because investors only earn money from the precious metal when its price rises. It is by no means said that the corona crisis will make gold more expensive in the long term. At least gold has so far not proven itself as a crisis currency in the past few weeks - otherwise the price would have risen sharply and not fallen. In principle, consumer advocates warn against investing no more than ten percent of your assets in gold.

The closed borders become a problem

However, this does not currently deter private investors; they continue to buy. The fact that retailers are currently finding it difficult to meet their demand also has to do with the border closings. The big bar manufacturers like Argor Heraeus are based in Ticino, Switzerland. Many of their employees come from Italy and usually commute across the border. According to reports, some of them have already been billeted in hotels in order to keep production going.

At the same time, the vans that bring the gold to Germany, like other suppliers, are stuck in traffic at the borders. Alternatively, getting the gold from the USA or Canada is not an alternative: The prices for intercontinental flights for freight have risen sharply, according to Pro Aurum. The trader is therefore preparing for further uncertainties. "Under certain circumstances, we can no longer receive goods that we bought and paid for several days ago," says a spokesman.

Investors pay a lot more than the value of the material

This is also a risk for investors. The traders assume that the premium for gold will continue to rise. That means: Whoever buys a bar now pays more than the gold itself is worth. A certain premium is normal, but it is particularly high in times of crisis. After the financial crisis, for example, investors had to pay a premium of 13 percent for a Krugerrand coin.

What also complicates the purchase: Like other stationary shops, most gold dealers had to close their branches in the meantime. The more is sold online. At Pro Aurum, for example, the webshop has recently been visited ten times more often than usual. Now it is also closed due to delivery problems. It should open again on Thursday - but even then only with a “very limited product selection”.

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